ECON 101 Lecture Notes - Lecture 30: Investment Goods, Demand Curve, Neutrality Of Money
20 views3 pages
Document Summary
They are called the business cycle because the fluctuations correspond to business conditions. So when real gdp grows rapidly, business is good, and when real gdp falls during recessions, businesses are often having trouble. We use real gdp, but it doesn"t really matter which measure of economic activity you observe because all of their movements are closely related. When firms make less goods, they don"t need as many workers. Two essential ideas are the classical dichotomy and monetary neutrality. Classical dichotomy: separation of variables into real variables (measuring quantities or relative prices) and nominal variables (measuring in terms of money) Monetary neutrality: changes in money supply affect nominal variables but. Classical econ says that money does not really matter. If quantity of money were to double in the economy, the changes would be nominal because the things people not real variables really care about, like if they have a job, affording necessary things, would not change.